The measurement of macroeconomic performance: Comparison of DEA-based alternatives.

Measurement; Performance;

Nonparametric analysis of household labour supply: Goodness-of-fit and power of the unitary and the collective model.

Goodness of fit; Power; Model;

The Macroeconomic Performance of Nations: Measurement and Perception

It is common practice to summarise the economic performance of countries in terms of four dimensions (real growth, inflation, unemployment and the external account), which are visually captured by the magic diamond of the OECD. In this paper we present a synthetic performance measure which merges the four separate indicators into one single statistic. The relative importance of each indicator, representing another macroeconomic objective, may vary across countries and over different subperiods. Therefore we want to construct an indicator which allows unequal weighting of its components, using a data envelopment analysis (DEA)-inspired linear programming model which exhibits ‘benefit of the doubt weighting’. These synthetic macroeconomic performance scores reveal interesting information. They confront measurement with perception. In this paper we use our measure to check empirically whether the strict Maastricht convergence criteria actually have led to a relative economic performance deterioration of the EU-candidates compared to the rest of the world. This viewpoint is often articulated in the theoretical literature. In particular, we investigate the performance of twenty OECD countries, half of which belongs to the EU, in the quinquennial period before and after the Maastricht Treaty.

Institutional Infrastructure and Economic Performance: Levels versus Catching Up and Frontier Shifts

We analyze the relationship between institutional infrastructure (capturing political stability, quality of government and social infrastructure) and overall country productivity for a sample of 57 (OECD and non-OECD) countries. Specifically, we compare empirical results for alternative productivity measures: output per worker and total factor productivity (TFP); in addition, we consider both levels and changes, where we decompose TFP changes into efficiency changes and technical changes. This gives us insight into the different channels through which the institutional infrastructure impacts on overall productivity performance: the 'accumulation' of production factors versus the 'accommodation' of production factors, and the 'shifting' of the world productivity frontier versus the 'catching up' with this frontier. In line with the existing literature, our results suggest a substantial accumulation effect: good institutions enhance capital accumulation. In addition, we find significant evidence in favor of an accommodation effect (in terms of both levels and changes), which elicits institutional quality as a 'lubricant' of the economic system: good institutions facilitate complex transactions, specialization and flexibility while reducing transaction costs. Interestingly, we find that good institutions enhance technical change as well as efficiency change. Conveniently, the decomposition of TFP change also allows us to interpret the convergence issue, for which largely inconclusive evidence is obtained on the basis of a combined TFP measure. Our findings reveal that efficiency change is associated with convergence, i.e., countries with lower initial productivity realize higher productivity growth through catching up. By contrast, technical change corresponds to divergence, i.e., countries with higher initial productivity succeed in higher productivity growth through shifts of the technological frontier. One possible rationalization is that greater experience with technological innovation (i.e., a closer situation to the world technology frontier) benefits the implementation of new products and processes (i.e., the cost of additional innovations falls).institutions; productivity measurement; convergence

Institutional infrastructure and economic performance: Levels versus catching up and frontier shifts.

We analyze the relationship between institutional infrastructure (capturing political stability, quality of government and social infrastructure) and overall country productivity for a sample of 57 (OECD and non-OECD) countries. Specifically, we compare empirical results for alternative productivity measures: output per worker and total factor productivity (TFP); in addition, we consider both levels and changes, where we decompose TFP changes into efficiency changes and technical changes. This gives us insight into the different channels through which the institutional infrastructure impacts on overall productivity performance: the 'accumulation' of production factors versus the 'accommodation' of production factors, and the 'shifting' of the world productivity frontier versus the 'catching up' with this frontier. In line with the existing literature, our results suggest a substantial accumulation effect: good institutions enhance capital accumulation. In addition, we find significant evidence in favor of an accommodation effect (in terms of both levels and changes), which elicits institutional quality as a 'lubricant' of the economic system: good institutions facilitate complex transactions, specialization and flexibility while reducing transaction costs. Interestingly, we find that good institutions enhance technical change as well as efficiency change. Conveniently, the decomposition of TFP change also allows us to interpret the convergence issue, for which largely inconclusive evidence is obtained on the basis of a combined TFP measure. Our findings reveal that efficiency change is associated with convergence, i.e., countries with lower initial productivity realize higher productivity growth through catching up. By contrast, technical change corresponds to divergence, i.e., countries with higher initial productivity succeed in higher productivity growth through shifts of the technological frontier. One possible rationalization is that greater experience with technological innovation (i.e., a closer situation to the world technology frontier) benefits the implementation of new products and processes (i.e., the cost of additional innovations falls).Performance;

Robust rankings of multi-dimensional performances: An application to Tour de France racing cyclists

There is a general interest in ranking performances (e.g., in sports or policy), which essentially implies aggregating several performance dimensions. The usual approach considers a 'cardinal' linear weighting of the different single-dimensional performance indicators. We present an alternative approach, which merely requires 'ordinal' information regarding the importance of the different performance dimensions. We argue that this approach is robust with respect to alternative specifications of the (possibly non-linear) underlying performance aggregation function. An application to Tour de France racing cyclists (in the period 1953-2004) illustrates the approach. We find that Eddy Merckx, Bernard Hinault and Lance Armstrong (robustly) dominate almost all other racing cyclists in our sample, while they do not dominate each other. A net-dominance metric ranks Bernard Hinault on the first place in our sample; Eddy Merckx and Lance Armstrong follow very closely ex-aequo on the second place.

Benchmarking Sustainable Development: A Synthetic Meta-index Approach

The need for monitoring countries’ overall performance in Sustainable Development (SD) is widely recognized, but the methods for aggregating vast amounts of empirical data remain rather crude. This paper examines the so-called ‘benefit-of-the-doubt’ weighting method as a tool for identifying benchmarks without imposing strong normative judgement about SD priorities. The weighting method involves linear optimization techniques, and allows countries to emphasize and prioritize those SD aspects for which they perform relatively well. Using this method, we construct a meta-index of SD (MISD), which combines 14 existing aggregate SD indices (developed by well-established organizations and/or expert teams) into a single synthesizing overall SD index. Within a sample of 154 countries, our index identifies 6 benchmark countries (3 high-income countries and 3 upper-middle-income countries), but also a number of seriously under-performing countries. We view this approach as a first step towards more systematic international comparisons, aimed at facilitating diffusion of the best practices and policies from the benchmark countries to the less developed world.Sustainable Development, Integrated Assessment, Benchmarking, benefit of the doubt weighting, Data Envelopment Analysis

Product mixes as objects of choice in nonparametric efficiency measurement

Non-radial measures of technical efficiency essentially differ from their radial counterparts in that the product mix of the efficient reference is allowed to be different from the product mix of the evaluated observation. Whereas existing non-radial measures are still based on the product mix of the evaluated, i.e. possibly inefficient observation, we change the perspective and propose a measure based on the mix properties of the efficient reference. The resulting `inverse' measure can be considered as complementary to the Färe-Lovell (or "Russell") efficiency measure.Data Envelopment Analysis; Non-radial efficiency measures; Product mix benchmarking

Nonparametric Analysis of Household Labour Supply: Goodness-of-Fit and Power of the Unitary and the Collective Model

We compare the empirical performance of the unitary and the collective approach to modelling observed labour supply behaviour. Deviating from the mainstream literature, we conduct a nonparametric analysis, which avoids the distortive impact of an erroneously specified functional form for the preferences and/or the intrahousehold bargaining process. Our analysis specifically focuses on the goodness-of-fit of the two behavioural models. To guarantee a fair comparison, we complement this goodness-of-fit analysis with a power analysis. Our results strongly favour the collective approach to modelling the behaviour of multi-person households. More generally, they illustrate the usefulness of nonparametric testing tools for the empirical evaluation of theoretical behavioural models.

Nonparametric analysis of household labour supply: Goodness-of-fit and power of the unitary and the collective model.

We compare the empirical performance of the unitary and the collective approach to modelling observed labour supply behaviour. Deviating from the mainstream literature, we conduct a nonparametric analysis, which avoids the distortive impact of an erroneously specified functional form for the preferences and/or the intrahousehold bargaining process. Our analysis specifically focuses on the goodness-of-fit of the two behavioural models. To guarantee a fair comparison, we complement this goodness-of-fit analysis with a power analysis. Our results strongly favour the collective approach to modelling the behaviour of multi-person households. More generally, they illustrate the usefulness of nonparametric testing tools for the empirical evaluation of theoretical behavioural models.Goodness of fit; Model; Power;